Friedrich Hayek once wrote that “prudent private bankers are the overseers of the market economy.” If bound by the Rule of Law, the private banker is forced to be prudent. He undertakes the safekeeping of the hard money of his customers, and he provides the crucial link between saving and investment, by which real savings are converted into Capital. It is such bankers that the modern world seeks, instead of the banksters we have today.
Under the Rule of Law, every person is free to accept whatever hard money he deems fit, as payment for goods and services sold. There is no “legal tender” – which is based on the misuse of State force. There is therefore no monetary nationalism. International payments will most probably be settled in gold, a homogeneous international money. This is, broadly speaking, the Islamic position on the issue.
The Islamic judgment on paper money concludes:
Imam Malik said money is “any merchandise commonly accepted as a medium of exchange.” This implies two things:
A) Money has to be a merchandise. Therefore it could be paper. But paper only for the value of the paper itself, not for what is written on it. Money must be something tangible (‘ayn). Money cannot be a liability of any kind.
B) Money must be commonly accepted. Therefore it cannot be imposed. No-one can say it is obligatory on you. No-one can even make the Gold Dinar obligatory on the people. The Gold Dinar and the Silver Dirham become a currency out of free choice, not as the result of decree. Paper money is imposed on people. This obligation is not accepted in Islam for two further reasons:
—The fraudulent nature of the offer: they oblige you to accept something above its value (its real value is zero).
—The obligation of the offer: you are obliged to accept it whether you like it or not.
However, Muslims must note, with sound, hard money and legitimate banking, there will be interest. The saver who defers consumption will earn interest, and the borrower who uses this savings to fund his current investments will pay interest. The banker will earn his bit too, as the middleman between the two.
Islam still has problems with this, as is reflected in this judgment, but I do believe that all traders charge a lower price for cash-on-delivery, while charging a higher price for deferred payments. This is interest. Since the morality of Islam is the morality of traders, I am confident that a search of historical records of the early days of Islam will show such transactions occurring regularly in the markets, and these were not considered riba (unjust profit).
And as for paper notes – we are rapidly moving towards a world of electronic money. The use of paper notes nowadays is extremely small, compared to earlier times. Electronic money can easily be linked to gold. This is the future of legitimate private banking.
The task before the theoretician, therefore, is to find a solution to the problem under the Rule of Law – which is based on Property. We have already seen how the current system of money and banking is a fraud, based on Property Titles Without Property. This fraud is backed by State force – including legal tender laws and central banking. All this is totally immoral.
Yet, there are many who believe that free banking is equivalent to free swindling. And yes, it can be so, if bankers are not bound by sound law, based on Property. We are fortunate today that a good deal of research has been conducted on these matters, including studies of the laws and banking practices of the past. I will discuss this tomorrow.
What my reader might want to think about till then is just how totally wrong John Maynard, Lord Keynes was. It is surely not accidental that Keynes called himself an “amoralist.” Fortunately, the ideas of such thinkers do not last forever, because, as a wise man observed, “any system not based on Truth and Justice cannot last long in human affairs.”
Recommended reading: Aristotle The Geek’s blog post on Keynes, the “favourite economist of the fascist.”
Tomorrow we will discuss Truth and Justice in the area of money and banking. Stay tuned.
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